Archive for May, 2018

Tax free home rentals

Thursday, May 31st, 2018

Since April 2016, the amount of tax-free income you can earn from letting a room in your home has increased to £7,500 per annum, or £3,750 if two persons own a property jointly.

You can use the scheme if:

  • you let a furnished room to a lodger
  • your letting activity amounts to a trade, for example, if you run a guest house or bed and breakfast business, or provide services, such as meals and cleaning

You can’t use the Rent-a-Room Scheme if:

  • not part of your main home when you let it
  • not furnished
  • used as an office or for any business – you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities
  • in your UK home and is let while you live abroad

 

If your gross receipts from letting aren’t more than the Rent-a-Room limit of £7,500 (or £3,750 if jointly owned), you don’t pay tax on your profit. If they’re more than the limit, you may still be able to benefit under the Rent-a-Room Scheme.

 

Gross receipts include:

  • rental income (before expenses)
  • any amounts you receive for meals, goods and services, such as cleaning or laundry
  • any balancing charges

 

If your gross receipts are less than £7,500 (or £3,750), you are automatically exempt from tax on that income.

 

If you’ve made a loss, however, it may be better for you to pay tax in the normal way – that is, on your receipts less expenses.

 

If your gross receipts are more than £7,500 (or £3,750), you can choose how you want to work out your tax. It can be the actual profit made (rents less expenses) or the gross rents received less the £7,500 (£3,750) allowance; whichever produces the better result.

Problems paying your tax on time

Tuesday, May 29th, 2018

You would be hard pushed to find a tax payer who was happy to pay tax. Whatever the economic benefits of taxation, we would all prefer that someone other than ourselves paid the bill.

Companies are obliged to disclose their corporation tax liabilities in the year in which they are charged. Profits are stated net of tax due and any retained profits are available for the shareholders to draw as dividends.

Sole traders and partnerships do not have to disclose current year’s taxation in current year’s accounts. Therefore, conversations about profitability and income tax can be separated.

Hopefully, readers who are self-employed will have settled any income tax due 31 January 2018. If not, HMRC’s debt collectors will no doubt be calling in their dues. There is also the second payment on account for 2017-18 which is due 31 July 2018.

If you have difficulty paying your tax? What is the best strategy?

Without a doubt, it is not burying your head in the sand. HMRC are quite clear in their advice:

Contact HMRC as soon as possible. You will have to pay interest if you pay tax late and you may avoid penalties by contacting HMRC.

If you can’t pay before the deadline, call the Business Payment Support Service. Anyone can use this service, not just businesses.

 

Business Payment Support Service
Telephone: 0300 200 3835
Monday to Friday, 8am to 8pm
Saturday and Sunday, 8am to 4pm
 

Nominated partners in business partnerships can negotiate time to pay with HMRC on behalf of the partnership or individual partners.

So, if you’ve missed your payment date, or if you’ve received a payment demand, like a tax bill or a letter threatening you with legal action, call the HMRC office that sent you the letter.

Call the Business Payment Support Service if you haven’t received a bill or letter about payment yet.

You will need to convince the person you speak with at HMRC that you have genuine reasons for late payment, so it pays to get your ducks in a row before you call.

Green vans to get tax boost

Wednesday, May 23rd, 2018

The government is looking at ways to incentivised users of vans to go green. According to the statistics, less than one in every two hundred vans (0.4%) bought in 2016/17 was an ultra-low emission model.

To tackle this issue, the government is seeking views on reforms to vehicle excise duty, currently charged at a flat rate of £250 for all vans, to make it more affordable to buy greener models.

In a related matter, the reduced duty rate for red diesel – believed to be holding back the use of cleaner fuels by non-road vehicles and machinery in towns and cities (for example cranes or generators used on construction sites) – is also under the reform microscope.

Red diesel, which accounts for 15% of all diesel consumption in the UK, currently benefits from a reduced rate of 11.14p per litre compared to the standard charge of 57.95p.

A government spokesman is quoted as saying:

“We want to help ‘white van man’ go green. We appreciate that buying a new van is a major investment for small businessmen and women and want to help make environmentally friendly choices more affordable.”

It will explore creating a graduated first year rate for vans, as is already in place for cars. Most van purchases would pay less tax in the first year as a result of the change.

These proposed changes are part of wider proposals to improve air quality in our towns and cities.

For example, red diesel contributes to air pollution by producing nitrogen dioxide, a toxic gas that inflames the lining of the lungs. It is particularly harmful for the most vulnerable in our society, such as children with asthma living in urban areas where it is used by non-road vehicles and machinery.

The reduced rate of duty for red diesel costs around £2.4 billion a year in revenue compared to if duty was charged at the main rate. Red diesel for agricultural use, fishing vessels, home-heating and other static generators, will be out of scope.

IR35 to get a facelift in the private sector

Tuesday, May 22nd, 2018

HMRC is launching a new consultation to make sure that people who effectively work as employees pay the right amount of tax.

As announced at the Autumn Budget, the consultation will look at how to increase compliance with the existing ‘off-payroll’ working rules. These rules mean that contractors such as IT and management consultants who work through their own company, but are in practice employed by a third party, pay the right tax as employees.

Evidence suggests that the tax will be lost of up to £1.2bn a year by 2023 as a result of people getting the rules wrong, and incorrectly paying tax as if they were self-employed. The consultation will look at how to make these rules work better. The genuinely self-employed will not be affected.

Last April, the government reformed off-payroll working in the public sector, successfully increasing compliance. The change has meant £410 million in additional revenue. This new consultation includes the option of extending those reforms to the private sector, although no decisions have been made. It draws upon the lessons from the public sector change, by consulting on how the rules can be improved for the private sector and includes alternative options for addressing non-compliance.

Existing off-payroll working rules (IR35) were introduced in 2000 and are intended to stop individuals avoiding employment taxes by working through their own company. IR35 affects contractors including IT consultants, management consultants, and project managers.

HMRC estimates that in 90% of cases within the private sector, the IR35 rules are not applied correctly and we should probably expect that this consultation will result in tightening of the IR35 regulations.

Genuinely self-employed persons will not be affected.

Readers may remember that in April 2017, the government reformed the off-payroll working rules for engagements in the public sector. Public authorities are now responsible for determining whether the rules apply and deducting and paying the appropriate taxes.

Apparently, external research on initial implementation shows that the reform has had relatively little impact on projects or vacancy filling in the public sector.

The consultation will close on 10th August 2018 and we will add further commentary on this topic as and if changes are subsequently made.

A final blog from Milne Craig?

Friday, May 18th, 2018

Dear All

The new “General Data Protection Regulation” means this will be the last Friday I can upload a rambling rant about the state of the tax system and our country to many of you.

If you have not already replied to our messages asking you to agree we hold your email and keep in touch please do so by a quick email to

info@milnecraig.co.uk

saying “gdpr yes”.

Some of our clients and friends appear entirely unaware that we have a sister firm in house called “Milne Craig Technology Solutions”. This is probably proof positive that accountants and IT specialists share an inability to market their services without help.

Their flyer is enclosed – please ask if you’d like to have a chat with one of them about how they help with your technology requirements! Click here – Derek Thomson is happy to speak to you-

MCTS at Milne Craig

I’ve had comments from a number of clients noting that “Donald’s Friday rants are less frequent” and I will confess that is a deliberate thing.  On balance, since 2014, I’ve felt most of the opinion I might express on tax changes and the economy would inevitably be seen as party political in some way, and that’s not for a Milne Craig “platform”.  I have no interest in our firm being seen to be left or right wing, or for or against Indy, any more than we would want it to be seen as a Rangers or Celtic.  We all have our opinions.

It’s a great pity as when Brown and Darling were Chancellor I felt criticism could be made of their tax policy without it being any kind of “anti-Labour” thing.  Those who read my rants seven or eight years back know I was quite critical.  I’ve not stopped criticism because we no longer have Labour in power but because the Scottish tax landscape is now woven tightly into issues of devolution and the campaign for independence and the UK Government is busy with Brexit.  And, most tax advisers will steer clear of a public comment on that matter.  I’m hearing that the nationalist movement is serious about a new referendum within the next year, so I think we can all safely assume my blogging will remain “reserved and cautious”.

Please enjoy your weekend, if you have not done so already, please tell our firm we can keep you on our database for these bulletins (most of them being the sensible standard tax updates) and if you’re part of the twitterati please note “@MilneCraig” is now used to provide updates.  I’m rather keen it has more followers!

With my sensible “hat” on I would say May is a month where you set up a folder and put all your 5th April tax information in it ready for the tax return to be prepared.  If you have a business you should remember to think about p11d returns for staff benefits and the similar form 42 share scheme return form.

Making Tax Digital requires VAT registered businesses to file extended returns from next April.  If you use “paper” systems then you should be discussing moving to suitable software urgently.

Another area of interest for many businesses is “R&D tax credits” where clients can get enhanced tax relief and repayments from a Government initiative to support businesses with R&D.  I suspect the relentless drive to end aggressive tax schemes is part of the reason that people are getting more excited about R&D (and capital allowance tax relief for capital spending on property).  There are numerous specialist firms marketing tax saving R&D analysis to businesses.  We do endeavour to review our clients corporation tax returns for potential R&D claims and many clients have made claims.  However, if you would like to know more please contact your routine contact here or Iain Thomson in the tax team for a chat.  The tax savings are remarkable.!

As ever, these views are mine, not those of the firm or my co-directors and staff.

Regards

Donald Parbrook

Director, Head of Tax, Milne Craig

 

 

 

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